RURAL

List Comparable criteria:

List Criteria for every other alternate action:

Current and Projected Income Statement

($ in millions, except per user data)
Fiscal Year Ended December
2009
2010
2011
Projected
Projected Projected

2008
Projected
Revenues from net production
Sales
Royalty at 18.5%
Total revenue
% Growth

$
$
$

4,332.6 $
801.5 $
3,531.10 $

6,236.0 $ 6,315.4 $ 6,404.8

1,153.7 $ 1,168.4 $ 1,184.9
5,082.36 $ 5,147.06 $ 5,219.94
43.9%
1.3%
1.4%

Production expense excl. taxes

Gross Profit
Gross Margin

(367)
3,164.34 $
89.6%

(528)
(535)
(542)
4,554.5 $ 4,612.5 $ 4,677.8
89.6%
89.6%
89.6%

(20.1) $

Taxes other than on income

Proved producing properties
Depreciation & depletion
Accretion expense
Exploration expenses
Unproved properties valuation
Other income (expense)
Earnings before Taxes
Profit Allowance (@16%)
Results before income taxes
Income tax expense
Additional earnings

$
$
$
$
$
$
$
$
$
$

(265.6)
(13.6)
(109.8)
(4.9)
(183.8)
2,566.50
410.6
2,155.86
(1,832.5)
323.4

$
$
$
$
$
$
$
$
$

(29.0) $
(382.3)
(19.5)
(158.0)
(7.1)
(264.5)
3,694.00
591.0
3,102.96
(2,637.5)
465

(29.4) $

$ (387.2)
$
(19.8)
$ (160.0)
$
(7.2)
$ (267.9)
$ 3,741.03
$
598.6
$ 3,142.46
$ (2,671.1)
471

(29.8)

$ (392.7)
$
(20.1)
$ (162.3)
$
(7.3)
$ (271.7)
$ 3,794.00
$
607.0
$ 3,186.96
$ (2,708.9)
478

Note:
For Valuation purposes assume $7B of Capital Expenditures will be amortized uniformly over 17 years; also assu
The line items were obtained from Chevron's annual report
(refer to Table III):
http://www.chevron.com/AnnualReport/2007/Financials/Supple
mentalInformationOnOilAndGas/
Assumption: All line items (incuding depreciation) are
calculated as a percentage of revenue. One reason being that
based on production schedule the life of the items and other
expenses/income change.
*For the balance sheet, assume working capital is constant.

mber
2012
Projected

2013
Projected

2014
Projected

2015
Projected

2016
Projected

2017
Projected

2018
Projected

2019
Projected

$ 6,529.9 $ 6,161.5 $ 5,777.7 $ 5,385.9 $ 4,967.3 $ 4,523.2 $ 4,048.7 $ 3,550.3

$ 1,208.0 $ 1,139.9 $ 1,068.9 $
996.4 $
919.0 $
836.8 $
749.0 $
656.8
$ 5,321.83 $ 5,021.61 $ 4,708.86 $ 4,389.47 $ 4,048.35 $ 3,686.40 $ 3,299.68 $ 2,893.52
2.0%
-5.6%
-6.2%
-6.8%
-7.8%
-8.9%
-10.5%
-12.3%
(553)
(522)
(489)
(456)
(420)
(383)
(343)
(301)
$ 4,769.1 $ 4,500.0 $ 4,219.8 $ 3,933.6 $ 3,627.9 $ 3,303.5 $ 2,957.0 $ 2,593.0
89.6%
89.6%
89.6%
89.6%
89.6%
89.6%
89.6%
89.6%
$

(30.4) $

$ (400.3)
$
(20.4)
$ (165.5)
$
(7.4)
$ (277.0)
$ 3,868.05
$
618.9
$ 3,249.17
$ (2,761.8)
487

(28.7) $

$ (377.7)
$
(19.3)
$ (156.1)
$
(7.0)
$ (261.4)
$ 3,649.85
$
584.0
$ 3,065.87
$ (2,606.0)
460

(26.9) $

$ (354.2)
$
(18.1)
$ (146.4)
$
(6.6)
$ (245.1)
$ 3,422.53
$
547.6
$ 2,874.93
$ (2,443.7)
431

(25.0) $

$ (330.2)
$
(16.9)
$ (136.5)
$
(6.1)
$ (228.5)
$ 3,190.39
$
510.5
$ 2,679.93
$ (2,277.9)
402

(23.1) $

$ (304.5)
$
(15.6)
$ (125.9)
$
(5.7)
$ (210.7)
$ 2,942.45
$
470.8
$ 2,471.66
$ (2,100.9)
371

ver 17 years; also assume changes in working capital will be zero.

(21.0) $

$ (277.3)
$
(14.2)
$ (114.6)
$
(5.2)
$ (191.9)
$ 2,679.38
$
428.7
$ 2,250.68
$ (1,913.1)
338

(18.8) $

$ (248.2)
$
(12.7)
$ (102.6)
$
(4.6)
$ (171.7)
$ 2,398.30
$
383.7
$ 2,014.57
$ (1,712.4)
302

(16.5)

$ (217.7)
$
(11.1)
$
(90.0)
$
(4.0)
$ (150.6)
$ 2,103.09
$
336.5
$ 1,766.59
$ (1,501.6)
265

2020
2021
2022
2023
2024
Projected Projected Projected Projected Projected
$ 3,024.9 $ 2,473.9 $ 1,893.9 $ 1,286.1 $
$
559.6 $
457.7 $
350.4 $
237.9 $
$ 2,465.32 $ 2,016.19 $ 1,543.55 $ 1,048.14 $
-14.8%
-18.2%
-23.4%
-32.1%
(256)
(209)
(160)
$ 2,209.3 $ 1,806.8 $ 1,383.2 $
89.6%
89.6%
89.6%
$

(14.1) $

$ (185.4)
$
(9.5)
$
(76.6)
$
(3.4)
$ (128.3)
$ 1,791.87
$
286.7
$ 1,505.17
$ (1,279.4)
226

(11.5) $

$ (151.7)
$
(7.7)
$
(62.7)
$
(2.8)
$ (104.9)
$ 1,465.43
$
234.5
$ 1,230.96
$ (1,046.3)
185

(8.8) $

$ (116.1)
$
(5.9)
$
(48.0)
$
(2.2)
$
(80.3)
$ 1,121.90
$
179.5
$ 942.39
$ (801.0)
141

655.5
121.3
534.25
-49.0%

(109)
939.3 $
89.6%

(55)
478.8
89.6%

(6.0) $

(3.0)

$
(78.8) $
(40.2)
$
(4.0) $
(2.1)
$
(32.6) $
(16.6)
$
(1.5) $
(0.7)
$
(54.6) $
(27.8)
$ 761.82 $ 388.31
$
121.9 $
62.1
$ 639.93 $ 326.18
$ (543.9) $ (277.3)
96
49

2007 Chevron Africa's income statement

8588

-892 -0.1038659

-49 -0.0057056
-646
-33
-267
-12
-447

-0.0752212
-0.0038426
-0.0310899
-0.0013973
-0.0520494

6242
-4907 -0.7861262
1335

Sample calculations on Taxes and Royalty

Gross Revenue
$100
Royalty (@18.5%)
($18.50)
Depreciation (say 10%)
($10)
Capex (say 10%)
($10)
EBIT
$61.50
Profit Allowance (@ 16%)
($9.84)
EBT
$51.66
Taxes (@85%)
($43.91)
Net Profit
$7.75
Note: Net Profit earned by the firm is in addition to the Profit Allowance

Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Option 1
Option 2
(Texas State Government)
(Futures Price)
67.83
134.61
68.34
136.25
69.21
135.23
70.19
135.00
71.56
135.24
73.15
135.70
74.83
136.40
76.73
137.15
78.63
138.00
80.55
140.07
82.40
142.17
84.30
144.30
86.19
146.47
88.11
148.67
89.94
150.90
91.61
153.16
93.39
155.46

Option 3
(Average Price)
101.22
102.30
102.22
102.60
103.40
104.43
105.62
106.94
108.32
110.31
112.29
114.30
116.33
118.39
120.42
122.38
124.42

Oil Production Schedule

1
2
3
4
5
6
7
8
9
10
11
12
Average Productio

Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

100,000
113,636
127,273
140,909
154,545
168,182
181,818
195,455
209,091
222,727
236,364
250,000
175,000

Production
Capacity
(barrels per day)
175,000
250,000
250,000
250,000
250,000
230,769
211,538
192,308
173,077
153,846
134,615
115,385
96,154
76,923
57,692
38,462
19,231

Production schedule
assumptions:
Production begins with
100,000 bblspd; at the end of
first year production reaches
250,000 bblspd. This level is
maintained for the next 4
years. Then it slowly tapers off
over the life of the project to 0
bblspd. Information based on
interview with Chevron.

Production
Capacity
(barrels
per
Capacity
Utilization
year)
63,875,000
100%
91,250,000
100%
91,250,000
100%
91,250,000
100%
91,250,000
100%
84,230,769
100%
77,211,538
100%
70,192,308
100%
63,173,077
100%
56,153,846
100%
49,134,615
100%
42,115,385
100%
35,096,154
100%
28,076,923
100%
21,057,692
100%
14,038,462
100%
7,019,231
100%

Actual
Production
63,875,000
91,250,000
91,250,000
91,250,000
91,250,000
84,230,769
77,211,538
70,192,308
63,173,077
56,153,846
49,134,615
42,115,385
35,096,154
28,076,923
21,057,692
14,038,462
7,019,231

ule

s with
at the end of
tion reaches
This level is
he next 4
wly tapers off
e project to 0
on based on
hevron.

Price of Crude
per barrel

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

67.83
68.34
69.21
70.19
71.56
73.15
74.83
76.73
78.63
80.55
82.40
84.30
86.19
88.11
89.94
91.61
93.39

Revenue
($ MM)

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

4,333
6,236
6,315
6,405
6,530
6,161
5,778
5,386
4,967
4,523
4,049
3,550
3,025
2,474
1,894
1,286
656

Cost of Capital Worksheet

Worksheet calculates cost of equity capital in nominal U.S. dollar terms.
Convert local currency cash flows to USD by the assumption of Purchasing Power Parity, i.e. the expected
annual depreciation in the FX rate is exactly equal to the difference between local and U.S. inflation rates.

Input in highlighted cells to obtain Discount Rate

Risk Premium Calculation
Inputs

Do not change>>
Do not change>>
Calculated automatically>>

Output

93.80
38.30
15.85

Calculated automatically>>

15.85

Industry Adjustment
0.00
Project Risk Mitigation
(-10 to 10; where 10=risk completely eliminated, 0=average for country)

Weights

Score

Impact on
Country
Premium

0.40
0.10
0.15
0.05
0.05
0.05
0.05

0.00
0.00
0.00
0.00
0.00
0.00
0.00

0.05
0.03

0.00
0.00

0.05
0.03

0.00
0.00

1.00
Project Cost of Capital
Cash Flow Check List:

15.85

in nominal U.S. dollar terms.

umption of Purchasing Power Parity, i.e. the expected

the difference between local and U.S. inflation rates.

n Discount Rate
Category
U.S. risk free in %
U.S. risk premium in %
Current U.S. Credit Rating
Institutional Investor country credit rating (0-100)
Anchored Cost of Equity Capital for project of average risk in country (ICCRC)
Country Risk Premium

Beta (Industry)
Sector adjustment

=average for country)

Sovereign
Currency (direct, e.g. convertibility)
Currency (indirect, e.g. political risk caused by crisis)
Expropriation (direct, diversion, creeping)
Commercial International partners
Involvement of Multilateral Agencies
Sensitivity of Project to wars, strikes, terrorism
Sensitivity of Project to natural disasters

Operating
Resource risk
Technology risk

Financial
Probability of Default
Political Risk Insurance
Sum of weights (make sure = 1.00)

Operating-Precompletion
Resources available (quantity/quality) -part not in discount rate
Technology (proven technology) -part not in discount rate
Timing risks (penalties for milestones)
Operating-Post-completion
Market risks (prices of outputs)
Supply/input risk (availability)
Throughput risk (material put through plus efficiency of systems operation)
Operating costs
Sovereign
Inflation assumptions/Exchange rates
Real Options
Input mix or process flexibility
Output mix or product flexibility
Abandonment or termination
Temporary stop or shutdown
Intensity or operating scale
Expansion
Contraction
Initiation or deferment
Interproject/intraproject
Growth
Shadow costs
Financial flexibility
Complex options which might diminish or augment value of other options